The argument that is put forward in this paper is that failure to represent stochastic trend and stochastic seasonality in an AIDS model leads to a misspecified and possibly structurally unstable model. This proposition is verified by estimating an AIDS model of the demand for alcoholic...

The exchange rate of the Kuwaiti dinar against the Japanese yen is modelled in terms of the activities of fundamentalists and technicians as well as the effect of the exchange rate arrangement. The results show that market forces, as represented by the activities of traders, play a role in the...

Imad Moosa shows that the effect of triangular arbitrage in the forward market is similar to the combined effect of triangular arbitrage in the spot market and covered interest arbitrage. He also shows that when the forward rates are inconsistent then this implies inconsistency of the spot rates...

A simulation exercise is conducted to find out if the profitability of forecasting-based currency trading is more related to the ability of the underlying model to predict the direction of change than the magnitude of the forecasting error. Theoretical considerations show that a correct...

This paper demonstrates the hazard of “stir-fry” regressions, which are used extensively in financial research to produce desirable results by reporting only one or a small number of regressions out of the tens or hundreds that are typically estimated. It is shown, by using data on the...

The objective of this article is to present a critique of Basel 2.5, the intermediate set of provisions between Basel 2 and Basel 3. It is argued that Basel 2.5 is the product of an ad hoc job, that it is unnecessarily complex and costly and that it does not circumvent the fundamental problems...

It is demonstrated that carry trade can be made more profitable by taking into account the drift factor in the random walk behavior of the underlying exchange rate if it is significant. By using four currency combinations we find the drift factor to be significant at horizons longer than one...

This paper examines the role of spot and forward speculation in determining the forward exchange rate. The evidence reveals that neither spot nor forward speculation plays any role in determining the forward exchange rate in three currency combinations, lending support to covered interest...